Home and Office Fitness Outfits Muscle in on Traditional Gyms
The way people work out is changing drastically. Whether people are hopping into their office fitness centers before work, taking a late-night trip down to the gym in their apartment building, or going to an afternoon SoulCycle class, the health-conscious have fitness options all around them. This surge in fitness centers being offered among other amenities, combined with the rise of specialty concepts, is taking a toll on the traditional sports club model. The push for wellness in the office environment, coupled with a fierce competition to attract and retain workers, has led to a fitness center arms race as landlords aim to top each other with the largest gyms and the most workout offerings.
For example, Midtown Center, the 812,000 square foot office Carr Properties is building for Fannie Mae in Downtown D.C., will feature an 8K square foot fitness center with a cardio workout area, weight machines, free weights, a bike room, and two fitness classrooms for group sessions. It is not just limited to new projects either. Market Square, an office building on D.C.’s Pennsylvania Avenue, recently underwent a $15M first phase of renovations in which it tripled the size of its fitness center to 9,500 square feet. The gym includes a yoga studio and the landlord, Columbia Property Trust, has hired a full-time on-site trainer who will offer four complimentary fitness classes to tenants each week. “They’re using these to attract tenants,” Savills Studley Senior Managing Director Nicole Miller said. “It makes a lot of sense where you just pop into the gym quickly and come back upstairs, versus having to go into a traditional facility, change and come back after you work out. It saves time and it saves money.”
The same shift is happening in multifamily buildings. Evolve Fit founder Corey Saunders, who consults on the fitness centers for some of the largest multifamily projects in Boston, said the apartment boom the city is experiencing has led developers to focus more on expansive fitness offerings. Saunders consulted on the gym for The Kensington, a 387-unit apartment building in Boston that delivered in 2013. The 3,500 square foot fitness center includes a wide range of new machines and studio space for yoga and classes. “This property has everything you need so it makes no sense to go have a gym membership with Boston Sports Club or Equinox,” Saunders said. He said he has seen residents pull the trainers from their old gyms, who work on an independent contractor basis, to come train them at the apartment building gyms. “It’s taking away money from gyms like Equinox because the trainers are going against the grain and training right at the luxury residential property,” Saunders said. Perry Brokerage Director of Intelligence Brendan Carroll said he sees a direct correlation between multifamily developers putting in extra effort to build competitive fitness centers and people wanting to live in those buildings. “It appears there is a certain amount of a performance gap between buildings that are allocating more space to the gyms,” Carroll said. “They’re essentially outperforming and achieving higher occupancy rates faster than the buildings that skimped a little bit.”
Retailers are muscling in on fitness centers, too. Before the wellness trend gained momentum in the workplace, department stores like Sears and J.C. Penney positioned themselves as destinations through photo studios and beauty salons. Now bix-box retailers like Bloomingdale’s, Saks Fifth Avenue, and Urban Outfitters are offering in-store fitness classes to draw customers. Saks’ New York flagship has devoted an entire floor to the 16,000 square foot wellness sanctuary that opened in May and offers fitness classes, a salt chamber and meditation alongside other merchandise. Fitness retailers have leaned into the trend too. Adidas opened its Runbase store in Berlin last year, which includes training facilities and a health-focused restaurant. In SoHo, Nike customers can test a pair of sneakers on the in-store basketball court, a football field or a treadmill. It may be too soon to tell how much the wellness business has increased sales—or if it has. But while clothing stores struggle, U.S. activewear sales have increased. In 2016, they rose 11% over the previous year to nearly $46 billion, according to The NPD Group.
With the growth of fitness centers in office/multifamily buildings and retail businesses, people have more options to work out without having to pay a monthly membership, and it appears to be hurting the traditional sports club model. Washington Sports Club recently closed one of its locations in D.C.’s East End. The broker who is leasing out the now-vacant space, Cushman & Wakefield’s Chris Hunt, said the company likely could not keep up with rising rents. “As people have been flocking back to the city and as the urbanization trend has continued to be popular, rents have risen,” Hunt said. “Certain retail categories can only afford so much.”
One major problem with the traditional gym model is the payment method, typically contract-based. Canceling your gym membership can be a workout in itself. Contract disputes and billing issues are the most common complaints to the Better Business Bureau. Consumers are increasingly choosing to skip the headache altogether and just use a workout facility they already have access to, but that only works for some.
Some customers are choosing to upgrade from traditional gyms to popular emerging fitness clubs. Some, like Equinox and Vida Fitness, have created luxury brands customers are willing pay to more for, while others like SoulCycle offer specialty classes. “I’m hearing a lot of buzz around those,” Miller said of high-end and specialty fitness clubs. “Those specifically seem to be garnering a lot of attention and a lot of members. I’m not hearing the same buzz around some of the other clubs.” Hunt attributed the success of high-end and specialty gyms to their ability to create an experience that young people are willing to pay more for. “You look at millennials, they like to go out to the cool new restaurant, the cool new bars and really have different experiences,” Hunt said. “They can go in a class and have instructors. There’s energy in the room. It’s a different model that is attracting not only millennials but it’s making exercising appealing to the masses.”
Citations
- http://bit.ly/2w74lWs Forbes
- http://bit.ly/2v6G3ik – Bisnow.com
Shell Prepares for a Lower Demand / Lower Price Oil Future
Royal Dutch Shell PLC recently laid out a pessimistic vision for the future of oil, even as the company reported success in generating cash during a prolonged downturn. Shell has cut costs and said it is preparing for a world in which crude prices never return to pre-crash levels and petroleum demand eventually declines. Shell Chief Executive Ben van Beurden said the company has a mind-set that oil prices would remain “lower forever”—a version of the “lower for longer” mantra the industry adopted for a price slump that proved unexpectedly lasting. “We have to have projects that are resilient in a world where oil has peaked,” Mr. van Beurden told reporters on a conference call discussing the company’s second-quarter financial results. “When it will happen we don’t know, but that it will happen we are certain.”
The views of the British-Dutch oil company reflect the transition under way in a global energy industry grappling with the twin forces of an oil-supply glut and a looming consumer shift away from petroleum. These trends are even more pronounced for oil companies in Europe, where local and national governments are trying to phase out vehicles with combustion engines, encourage electric automobiles and reduce overall carbon emissions. Experts differ on the timing of peak oil demand. In its most conservative scenario, Shell sees oil peaking within the coming decade. The International Energy Agency says the timing will be more like 2040. The advent of declining demand—after decades of untiring growth—would likely cause a slide in the value of oil and the companies that produce it.
On the other hand, U.S. energy giants such as Exxon Mobil Corp. and Chevron Corp. have said peak oil demand is still far off. And even when oil consumption eventually stops growing, Shell is not expecting it to drop off a cliff. “It doesn’t mean it’s game over straight away,” Mr. van Beurden said. “There will be a continued need for investment in oil projects.” Mr. van Beurden’s comments are broadly in line with Shell’s overall strategy of moving toward producing fuel for electricity, such as natural gas and even renewables, and focusing on keeping costs low. The company now produces more gas than oil, is building a massive wind farm off the Dutch coast and has plans to spend up to $1 billion a year on building its presence in new energy sources such as renewables by the end of the decade.
Despite Shell’s conservative view on oil, the company presented what analysts said was a strong set of financial results for the second quarter. Shell’s equivalent of net profit rose to $1.9 billion from $239 million a year earlier and its cash flow from operations soared to $11.3 billion. The company said it generated $38 billion of cash from its business over 12 months, enough to cover dividend payments and bring down debt.
Shell’s earnings were reported on the same day as French oil giant Total SA and Norway’s Statoil ASA, all of them striking a confident if cautious note. They trumpeted falling debt levels and strong cash flow—a metric that has become increasingly important to investors who have been worried about oil companies’ ability to cover their spending and dividends without taking on debt. Cash flow has become an important way to gauge the health of big oil companies during the price downturn because it demonstrates their ability to make dividend payments to investors without taking on new debt.
Hefty, regular dividends are a significant reason that big investors put money in oil companies, which have historically struggled to offer hope of significant share-price growth because of their size. Investors are particularly wary in an era of low oil prices. At the depths of the oil-price crash, big oil companies took on tens of billions of dollars in debt to help cover dividend payments. Several offer payouts as company shares, known as scrip—a practice that has kept investors happy in the short-term but was widely seen as unsustainable.
In the first quarter of last year when oil hit its nadir of $27 a barrel, Shell’s cash flow fell to just $700 million. Oil’s fragile recovery since then to around $50 a barrel has helped the sector, but Shell and its peers have also engaged in aggressive efforts to bring down costs so they can survive at lower prices. Shell said that removing its scrip dividend remains a priority that it is working toward. “We are getting fit for the 40s,” Mr. van Beurden said, referring to a world in which oil prices are below $50 a barrel.
Citations
- http://on.wsj.com/2tKCTNH – Wall Street Journal
- http://on.mktw.net/2w7kefz – MarketWatch.com
The Good News Is . . .
- Second quarter gross domestic product (GDP) was healthy, growing at a 2.6% annualized rate with the consumer spending component also healthy at a 2.8% rate. Business investment, at 5.2%, was very strong and offset lower residential investment. Overall inflation remains weak at only a 1.0% rate. Core inflation was just 1.1%, down from 2.4% in the first quarter. Consumer spending for durable goods was very robust at 6.3% despite the quarter’s weakness in vehicle sales. Spending on nondurable goods also rose at 3.8% which occurred despite weakness in gasoline prices.
- Stanley Black & Decker, Inc., a leading supplier of tools and related equipment, reported earnings of $2.01 per share, an increase of 9.2% over year-earlier earnings of $1.84 per share. The firm’s earnings topped the consensus estimate of analysts by $0.05. The company reported revenues of $3.2 billion, an increase of 10.1%. Management attributed the results to strong organic growth in its tools and fastenings business segments, improved operating margins, and contributions from its recent acquisitions.
- Michael Kors Holdings announced the purchase of the shoe company Jimmy Choo for $1.2 billion, the latest push by an American high-end fashion house to find new sources of growth and what its chief executive characterized as the first step in building a bigger international luxury group. Many upscale brands like Michael Kors have faced plummeting sales and tepid profits. Mall traffic in North America has declined sharply, while shoppers who have traditionally been loyal to the so-called middle market have gravitated toward brands at extremes of the style and price spectrum. The trends have played well for e-commerce giants like Amazon, fast-fashion brands like H&M and Zara, and luxury houses like Gucci. But it has left companies like Michael Kors—once the runaway leader of the “accessible luxury market”—exposed. Under the terms of the transaction, Jimmy Choo investors would receive $3 for each share they own.
Citations
- https://bloom.bg/2eVhfSb – Bloomberg
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2vR5K47 – Stanley Black & Decker, Inc.
- http://nyti.ms/2eV3nt4 – NY Times Dealbook
Planning Tips
Tips for Investing Like Ultra High Net Worth Individuals (UHNWI)
The ultra-wealthy, known as ultra-high net worth individuals (UHNWIs), is made up of people who have a net worth of at least $30 million. The net worth of these individuals consists of shares in private and public companies, real estate investments, and personal investments—such as art. When people with a lower net worth look at these UHNWIs, many of them believe that the key to becoming ultra-wealthy lies within some sort of secret investing strategy. However, this is not normally the case. Instead, UHNWIs understand the basics of having their money work for them as well as understand how to take calculated risks. Below are some basic strategies used by UHNWIs that you can use to increase your net worth. Be sure to consult with your financial advisor to determine which investment strategies are appropriate for your situation.
Deciding to Invest Only in the US and the EU – While developed countries such as the United States and those within the European Union are thought to offer the most investment security, this is not necessarily the case. With the recent high risk in the EU, UHNWIs are currently looking beyond the U.S. and the EU for investments. While many investors would rather stick to investing in developed countries in the Western world, UHNWIs have been setting their sights on frontier and emerging markets. Some of the top countries that the ultra-wealthy are investing in include Indonesia, Chile and Singapore. Of course, individual investors should do their own research on emerging markets and decide whether they fit into their investment portfolios and their overall investment strategies.
Choosing to Invest Only in Intangible Assets – When people think of investing and investing strategies, stocks and bonds normally come to mind. Whether this is due to higher liquidity or a smaller price for entry, it does not mean that these types of investments are always the best. Instead, UHNWIs understand the value of physical assets, and they allocate their money accordingly. Ultra-wealthy individuals invest in such assets as private and commercial real estate, land, gold and even artwork. Real estate continues to be a popular asset class in their portfolios in order to balance out the volatility of stocks. While it is important to invest in these physical assets, they often scare away smaller investors because of the lack of liquidity and the higher investment price point. However, ownership in such assets, especially ones that are uncorrelated with the market, can be beneficial to any investment portfolio. These assets are not susceptible to market swings, and they can pay off over the long-term.
Allocating 100% of Investments to the Public Markets – UHNWIs understand that real wealth is often generated in the private markets rather than the public or common markets. The ultra-wealthy may gain a lot of their initial wealth from private businesses, often through direct business ownership or as an angel investor in private equity.
Failing to Rebalance a Personal Portfolio – Everyone should understand the practice of rebalancing their portfolios. Through consistent rebalancing, investors can ensure that their portfolios remain adequately diversified and proportionally allocated. However, even if some investors have specific allocation goals, they often do not keep up with rebalancing, allowing their portfolios to skew too far one way or the other. For the ultra-wealthy, rebalancing is a necessity. They can undertake this rebalancing monthly, weekly, or even daily, but all UHNWIs rebalance their portfolios on a regular basis. For the people who do not have the time to rebalance—or the money to pay someone to do it—it is possible to set rebalancing parameters with investment firms based on asset prices.
Omitting a Savings Strategy from a Financial Plan – Investing is the number-one way to become ultra-wealthy, but many people forget about the importance of a savings strategy. UHNWIs, on the other hand, understand that a financial plan is a dual strategy: invest wisely and save wisely. This way, the ultra-wealthy can focus on increasing their cash inflows as well as reducing their cash outflows, increasing their overall wealth. While it might not be common to think of the ultra-wealthy as savers, UHNWIs know that living below their means from day one will allow them to achieve their desired level of wealth in a shorter amount of time.
Citations
- http://bit.ly/2uG5JBR – US News & World Report
- http://read.bi/2tKRatu – Business Insider
- http://bit.ly/1WPJNdb – Investopedia
- http://cnnmon.ie/2uK8sZl – CNN Money
- http://bit.ly/2u5uqnF – Motley Fool
